Japan's largest memory chipmaker has teamed up with United Microelectronics (UMC) of Taiwan to offer contract chip manufacturing services in Japan, putting them in competition with Toshiba and potentially helping change the chip production landscape in Japan.

Elpida will use UMC production technology at an advanced chip factory in Hiroshima to offer contract chipmaking services to other companies in Japan. For Elpida, offering to produce advanced logic chips for other companies is a new business and will put it in direct competition with Toshiba. Elpida was formed out of the memory divisions of NEC and Hitachi in 1999, amid a restructuring of the chip operations at Japanese electronics companies. At the time, companies were spinning off memory chip companies due to the cutthroat nature of the business.

More recently, Japanese companies have been turning to contract manufacturers for other kinds of chips. Last month, Sony agreed to outsource production of chips for its PlayStation 3 game consoles to Toshiba in a new joint venture deal. Renesas and Elpida also last month agreed to form a joint venture for LCD chips with Taiwan's Powerchip Semiconductor.

UMC and Elpida said their deal will include such advanced chips as SoCs, system-on-a-chip, which are chips that combine the functions of several chips onto one. The companies also announced an extension to the joint development program they announced late last year in DRAM, PRAM (phase-change RAM), and advanced chip manufacturing technologies such as copper and low-k processes.

The two companies said the new business is ideally timed because more and more Japanese electronics companies are trying to outsource chip manufacturing and production technology development to avoid the expenses. An advanced chip factory with the latest production lines can cost more than $4 billion.

UMC will continue to offer foundry services in Japan through its subsidiary there, UMC-Japan. The deal with Elpida won't impact UMC-Japan, said Alex Hinnawi, a spokesman for UMC. The company only operates 8-inch chip factories in Japan, but some customers want production on more advanced 12-inch wafers, he said. Elpida will use 12-inch production lines for the work.

For UMC, the deal is also a way to get Japanese companies hooked on its production technology. Chip designers have to tweak designs to fit the production lines, and once a product is finished, changing contract manufacturers would mean having to rework the design of the chip to fit new production lines.

"This is a way for us to improve our exposure in Japan," Hinnawi said.